Alibaba CEO steps down in advance of IPO

By Lulu Yilun Chen

Bloomberg News

Posted:
05/10/2013 03:42:48 PM PDT

Updated:
05/10/2013 03:42:50 PM PDT

Billionaire Jack Ma, founder of Alibaba Group Holding Ltd., said he plans to focus on environmental protection and education as he steps down as chief executive officer of China's largest e-commerce company before an initial public offering.

Ma won't return as Alibaba's CEO, he said yesterday during a company event in Hangzhou, China, as he ceded the role to successor Jonathan Lu. The company will continue supporting small and medium-sized enterprises in China, said Ma, who will remain executive chairman and shape strategy. Ma told employees in January about his plan to step down as CEO.

"I hope you can trust the new team and Lu just like you trusted me," he said. "Ten years of being an entrepreneur has made me understand hardship, persistence and responsibility."

Lu takes charge of a company whose sales equal 2 percent of China's gross domestic product and is refocusing on mobile platforms to replicate its dominance with desktop computer users. Alibaba is rolling out a smartphone operating system, buying a stake in China's biggest Twitter-like service and getting $8 billion in loans -- steps considered a prelude to an IPO that may be worth as much as $100 billion.

Alibaba doesn't sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers, a cross between Amazon.com Inc. and EBay Inc. (EBAY) It makes most of its sales from commissions and advertising.

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Goods sold on Alibaba -- ranging from consumer staples to cement and aluminum -- were worth $180 billion last year, said Eric Qiu, analyst at Guosen Securities Co. in Hong Kong.

Ma's handover of the CEO role in Hangzhou, where Alibaba is based, coincides with the 10-year anniversary of Taobao, which means "searching for treasure" in Chinese. The business is credited with generating an estimated 13 million jobs in China last year, according to a company-commissioned report.

A former English teacher, Ma and 17 others founded Alibaba as an online marketplace for Chinese companies in 1999.

Alibaba's profit more than doubled to $642.2 million in the quarter ended December from $236.9 million a year earlier, according to a Yahoo! Inc. (YHOO) filing. Revenue rose 80 percent to $1.84 billion, according to the Sunnyvale, California-based company, which owns about 24 percent of Alibaba.

Morgan Stanley estimates Alibaba's net income could reach $2.18 billion for the 12 months through December, more than double last year's $746.3 million, according to a March 6 research note.

Alibaba's Tmall and Taobao generated 4 billion package deliveries, according to Ma. That is 70 percent of China's 5.7 billion parcel and express deliveries in 2012, according to the State Post Bureau.

Ma has an estimated net worth of $3.5 billion, according to the Bloomberg Billionaires Index. He owns about 7.4 percent of Alibaba Group, according to a Hong Kong stock exchange filing in April 2012.

Even though Ma won't look after daily matters, he will remain the most important person in the company, said Qiu of Guosen Securities.

"Investors won't be too worried about him stepping down, what they care about is whether Alibaba can maintain growth and how it deals with regulatory risks," Qiu said. "Jack Ma will be there to take care of that."

Lu has to contend with fresh competition, including the WeChat messaging service of China's biggest Internet company, Tencent Holdings Ltd., that has more than 300 million users.

A key challenge will be maintaining creativity and innovation given the increased size of Alibaba, said Victor Yip, an analyst at UOB-Kay Hian Ltd. in Hong Kong.

"It would be hard to sustain a three-digit growth every year at such a big scale," Yip said.

China had 564 million Internet users at the end of 2012, according to the government-run China Internet Network Information Center. The nation has more Web users than the population of any other country except India.

Chinese are more likely than their global counterparts to use smartphones and tablets to shop online, according to a PricewaterhouseCoopers LLP survey in May. In China, 35 percent of respondents shop on smartphones at least once a month, compared with 16 percent for global consumers, the survey showed.

To help compete with Tencent, Ma is making acquisitions. Last month, Alibaba spent $586 million for an 18 percent stake in Sina Corp.'s Weibo unit to capture a greater share of social e-commerce through smartphones and tablet computers.

The company yesterday agreed to pay $294 million for a 28 percent stake in mapping company AutoNavi Holdings Ltd. to develop location-based e-commerce opportunities, it said.

Lu joined Alibaba in 2000 to manage the South China sales region for Alibaba.com. In 2004, he led a team to develop Alipay, an equivalent of PayPal Inc.'s service, and became chief executive officer of Taobao in 2008, according to a company statement.

Lu became chief executive officer in 2011 of the then- publicly traded Alibaba.com Ltd., a business-to-business platform. After the Hong Kong-listed spinoff was bought back by the parent in 2012, Lu focused on his role as chief data officer at Alibaba Group and oversaw development of its mobile operating system called AMOS.

The company is working with five Chinese handset makers to use the software, it said last month.

This month, the company finalized $8 billion of new loans from nine banks to refinance older borrowings and buy back preferred shares from Yahoo! Inc.

"As a new CEO, he will have to keep a whole group of people involved," said Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency. "Once you're listed the whole game changes, you are answerable to your shareholders as much as your customers."